The Zacks Analyst Blog Highlights: Berkshire Hathaway, Southwest Airlines, United Continental Holdings, Delta Air Lines and JetBlue Airways

CHICAGO, April 19, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Berkshire Hathaway Inc. (NYSE: BRK.B), Southwest Airlines Co. (NYSE: LUV), United Continental Holdings Inc. (NYSE: UAL), Delta Air Lines Inc. (NYSE: DAL) and JetBlue Airways Corporation (Nasdaq: JBLU).

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Here are highlights from Wednesday's Analyst Blog:

Buffett May Unveil Heir Soon

Warren Buffett, the Chairman and CEO of Berkshire Hathaway Inc. (NYSE: BRK.B), has had no intention till now to step down from his post, but now it seems that the octogenarian will soon have to do some rethinking in this regard as there has been an unprecedented development in Buffett's health. On Tuesday, he announced that he has been diagnosed with Stage 1 prostate cancer.

Despite an early diagnosis, the side effects of the impending treatment of the 81-year-old could be a concern. Warren Buffett has decided to undergo radiation treatment. Given his age, the radiation treatment may have a negative effect on his health. 

Nevertheless, Buffett sounded optimistic in his letter to shareholders saying that he was feeling normal and his energy level continued to be 100%.

This sudden announcement has once again raised a question about Berkshire's succession plans in the minds of its shareholders. Buffett had already announced during the last shareholder's meet that the prospective candidates have been finalized for the higher ranks. However, the names have been kept under wraps.

The shareholders will continue to feel anxious until they get to know the names or get more clarity on the company's succession plans. Buffett plans to split up his single job into three parts that of a CEO, Chairman and investment management for the smooth functioning of the organization. We also believe that it is extremely difficult for any new management or individual of this behemoth conglomerate to ably fill in his shoes.

As far as the operations of Berkshire Hathaway is considered, sans Buffett, we believe the conglomerate will continue to run swiftly, with most of its businesses performing exceptionally well. Though some of its businesses have been affected in the recent years due to the U.S. downturn, they are slowly recovering with the gradual recovery of the economy.

Moreover, Buffett's practice of letting the units' managers handle their own operations independently, without his significant interference, is expected to keep the wheels of the business running smoothly even if he is not around. 

Though Buffett has streamlined operations to run on their own, greater concerns surround the investment role played by Buffett along with the company's Vice-Chairman Charlie Munger, who is already 88 years old. Buffett is known as a value-investor worldwide. While he has picked up hedge fund manager Todd Combs and Ted Weschler to manage the company's investments, utilizing the vast amount of cash that the company generates quarter after quarter is a mammoth task.

Though Berkshire has to run without Buffett someday, the two are so closely interlinked that any news relating to Buffett's retirement from the job is bound to make headlines and spark investors' concerns.

Look to the Air Ahead of Earnings

The lingering economic uncertainty and inflating fuel costs might have dampened several sectors, but these challenges have failed to unnerve the U.S. air carriers. Despite the headwinds, the U.S. air carriers are providing excellent services to their passengers. They are performing at their record levels when it comes to on-time performance, baggage handling, fewer customer complaints, lower cancellations and overbooked flights.

Airlines appear to be well placed against the backdrop of higher fares, new advertising rules and capacity cuts. 

The Efficient Steps

Fuel prices, though high, remain well below the 2008 level of over $140 per barrel that had ravaged the airlines industry. The carriers are taking profitable actions to endure the current crisis. They are successfully passing on the increased cost to customers in the form of fare hikes and effectively using fuel-hedging strategies to combat the rising fuel prices.

Apart from cutting capacities, air carriers are adding novel features to their services, as well as introducing new products. These measures will fuel revenue growth and reduce non-fuel costs, thereby driving future profitability.

The Costs Before Flying

Nevertheless, the addition of new services and products involve a huge amount of spending, which might restrict the carriers' profitability in the near term.

Moreover, the carriers are focusing on fleet rightsizing. Though initially expensive, this seems to be the correct strategy to lower non-fuel costs. Air carriers are replacing their older fleet, which are no longer practical in a fuel-expensive environment, with the latest fuel-efficient aircraft.

Unfortunately, the increased expenses will take a toll for now and the airlines are expected to report loss in the first quarter. Southwest Airlines Co. (NYSE: LUV), the largest U.S. low-cost carrier, will kick-start the earnings reports in the sector when it comes out with its results on April 19. (Read our full coverage on the earnings preview report: Earnings Preview: Southwest Airlines)

The largest U.S. airline United Continental Holdings Inc. (NYSE: UAL) and the second-largest U.S. airline Delta Air Lines Inc. (NYSE: DAL) is slated to release its earnings on April 26 and April 25, respectively. One of the leading low-cost airlines JetBlue Airways Corporation (Nasdaq: JBLU) will report first quarter earnings on April 26.

Cashing In on the Opportunity

We believe any fall in the share prices of these major carriers, ahead of the expected earnings results, points to the good entry level validating attractive valuations. Increasing demand for global air travel and a concomitant rise in fares justify our optimistic thesis on the airline companies.

We are currently maintaining our long-term Neutral recommendation on Delta and JetBlue, and Underperform rating on United Continental and Southwest. For the short term (1–3 months), Southwest and JetBlue retain the Zacks #3 Rank (Hold) while Delta and United Continental holds Zacks #4 Rank (Sell) and #5 Rank (Strong Sell), respectively.

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